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Climate tech funds show positive trajectory despite fundraising headwinds

SAN FRANCISCO, April 21, 2025 /PRNewswire/ -- The climate tech sector is seeing signs of recovery as venture capital (VC) is flowing into energy, manufacturing, and carbon tech, according to the latest report from Silicon Valley Bank (SVB), a division of First Citizens Bank. Additionally, Climate tech funds are outperforming overall VC, reaching a 9% higher internal rate of return (IRR) in the 2020-2024 fund vintage.

"With continued investor interest, the Climate tech sector is showing reasons for optimism this year," said Dan Baldi, National Head of SVB's Climate Technology and Sustainability practice. "Clean fuels, dispatchable renewables and carbon tech are taking the spotlight, sparked by a shift toward electrification and ongoing goals to reduce emissions."

Leveraging SVB's proprietary data and insights, the Future of Climate Tech 2025 Report reveals the current fundraising landscape, sector trends, and explores how the industry is evolving to address challenges across the innovation economy.

SVB's Future of Climate Tech report analyzes key themes shaping the future of climate technology, including:

• Raising Equity is Tough, But Signs of Growth Persist: 57% of US VC-backed climate tech companies need to raise in the next twelve months even as more than half of companies are reducing burn YoY. Yet there are encouraging signs of growth – trailing 12-month venture investment is increasing, company formation remains strong, and early-stage activity is still vibrant.

• Early-Stage Resiliency: Early-stage investment has remained more resilient than later-stage activity over the last three years, showing a healthy pipeline of companies fueling future growth of the industry.

• Electrification Continues, Demand Accelerates: By 2030, half of electricity generation will come from renewable resources. Climate tech solutions from storage to demand response and improved transmission are poised to transform the energy and power sector.

Key findings from the Future of Climate Tech Report include:

• Valuations and Rounds on the Rise: After valuations bottomed out in 2023, they are on the rise again with climate tech valuations overtaking VC investment at the later-stage. Aside from seed, where median deal sizes have held steady, rounds are getting bigger. Series B and C+ rounds reached decade highs of $30M and $60M, respectively in 2024.

• Extinguishing Burn, Improving Margins: Margins improved, but revenue growth rates fell. Climate tech hardware companies saw growth rates fall from a median of 58% at the end of 2021 to just 19% by the end of 2023. While growth rates have since marginally improved, climate tech software companies are seeing higher profit margins than hardware companies. The median climate tech software company with over $50M in revenue saw a 30% higher profit margin in 2024.

• All-Time High for Clean Power Deals: Bolstered by incentives within the IRA and Chips and Science Act that improve profit margins for many renewable energy producers, clean energy and power companies closed 382 deals and surpassed $7B investment in 2024, up 15% YoY and a more than 3x increase over pre-COVID levels.

• M&A Back to 2020 Levels: Between mid-2023 and early 2024 deals coming from financial buyers jumped from 15% of transactions to 40% of transactions, signaling that financial buyers may be stepping in as VC investment remains low.